Journal of Investment Strategies

Risk.net

Performance versus turnover: a story by 4000 alphas

Zura Kakushadze and Igor Tulchinsky

  • We analyze empirical data for 4,000 real-life quantitative trading portfolios.
  • We find that cents-per-share scales as inverse turnover.
  • Portfolio return is independent of turnover and almost linear in volatility.
  • This is the first study on such a large number of real-life quant trading portfolios.

ABSTRACT

We analyze empirical data for 4000 real-life trading portfolios (US equities) with holding periods of about 0.7-19 trading days. We find a simple scaling C ∼ 1 ⁄ Τ , where C is cents-per-share and Τ is the portfolio turnover. Thus, the portfolio return R has no statistically significant dependence on the turnover T. We also find a scaling R ∼ VX, where V is the portfolio volatility and the power X is around 0.8-0.85 for holding periods up to ten days or so. To our knowledge, this is the only publicly available empirical study on such a large number of real-life trading portfolios/alphas.

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